Market misconception

The market collectively believes
1. The Fed will be there again when economy slows. QE can be done indefinitely. This is not true. The cost (higher inflation) will be much higher than benefits for more QE.
2. Chinese RMB is way undervalued. In fact, on PPP basis, the undervaluation is small. A big Mac meal cost about $3.8 (25 RMB) n China. Most clothing are more expensive in China. If RMB float freely, a 5-10% appreciation is more likely than 20-30% as market expected.
3. Inflation will be contained because of wage constrain. Over last 20 years, the global trade is the most important factor to slow inflation . But it is changing rapidly because of cost in China and other EM market are rising rapidly and cost of shipping is rising as well. The imported inflation Will be felt by average consumer whether t s represented by CPI or not.
4. The higher corporate profits are due to good management. This is far from true. a big part of the profits are coming from lower dollar, higher commodity price and lower financing costs.